The Internal Revenue Service is auditing $177.2 million of Series 2005I long-term adjustable-rate hospital revenue bonds issued by the Highlands County, Fla., Health Facilities Authority for the Adventist Health System/Sunbelt Group.
The audit was disclosed in a notice the health system filed with the Municipal Securities Rulemaking Board's EMMA system.
The IRS informed the authority of the audit in an Oct. 4 letter.
The authority said it and health system "believe that all requirements of the Internal Revenue Code … were satisfied."
Bradley S. Waterman is representing the authority for the audit, but declined to comment.
The 2005 bonds were used to advance-refund bonds that were issued in 1999 by the Illinois Development Finance Authority. They also were used to reimburse Memorial Health Systems Inc., a member of the Adventist group, for expenditures made to improve two hospitals in Ormond Beach, Fla.
The bonds were initially issued as fixed rate but were remarketed in November 2009 as $125 million of variable-rate demand bonds and $52.42 million of fixed-rate bonds.
The health system had entered into an interest swap with Lehman Brothers in September 2005 in anticipation that variable-rate bonds would be issued. But when the $177.2 million of bonds were issued in December 2005 as fixed rate, a portion of the swap was terminated.
After Lehman filed for bankruptcy in 2008, the swap was terminated and the health system entered into a new swap with Deutsche Bank.
The health system also entered into a forward purchase agreement around the time the 2005 bonds were issued to purchase securities in the future for an escrow to advance refund the 1999 bonds.
Bond documents show that Ziegler Capital Markets was underwriter for the fixed-rate bonds and that the dealer, along with Citi, served as remarketing agent for the variable-rate bonds.
Bond counsel was Chapman and Cutler LLP in Chicago.
Merrill Lynch & Co., now Bank of America Merrill Lynch, provided the forward purchase agreement for the escrow securities.